100% equity

[swill453]

Thanks to all for the replies. It is especially interesting to hear from those who are retired who still have a substantial part (100%) in equities.

That's me too, 7 years retired and no regrets.

Scott.

[Urbandreamer]

The PNL objectives are: 'to protect and increase (in that order) the value per share for the funds of shareholders over the long term.' I think one can similarly seek that aim with a mix of low cost diversified equities and government bonds. Even accepting that PNL may have been a good performer recently, what is it that makes this active fund a better choice than a mix of index trackers when the evidence strongly points to active funds underperforming beyond about 3 years in general, and that persistence is not a consistent feature of outperformance? I'd like to be convinced if it's going to be a better investment choice for me.

Given that this is the passive board I'm not going to start or join the active/passive debate.

What I would say is that you are comparing apples with oranges.

IF you are going to include the likes of wealth preservation funds such as PNL in your pot of active funds then of course that pot is going to underperform the index.
If anyone can be bothered to check PNL's top 10 holdings, some 42% of their fund is not in equities at all (10% is in gold, 32% US government bonds).
However isn't your low cost mix of diversified equities and govenment bonds also likely to underperform an index tracker (or mix of index trackers) over 30 years?

IMHO you can't compair either the passive mix or the active mix with an index tracker. It's as meaningless a comparison as apples and oranges.

[JohnW]

But for the lower risk wealth preserver part of the portfolio (if I wanted that, which I have not so far), the chances of a PNL holding its real value, without sudden price collapse, are IMO, better than that of government bonds which I think are virtually certain to lose purchasing power over the long term and could fall sharply in price, if other than short dated, in the event of a rise in interest rates.

Holding VWRL plus bonds as the wealth preserver element doesn’t make sense to me.

If you and I decided that we only wanted to hold 80% equities, and both think a global tracker is suitable, then you’d choose PNL for the other 20% (remember it holds some carefully chosen equities to 15% - I’m guessing, do I have the right fund?) to ‘hold its real value without price collapse'. Instead, I could choose an intermediate term (or short if you like) government bond fund, but because its growth potential is low compared with your PNL, I choose my 20% to be made up of mostly government bonds (85%) and global equities (15%). So now I have 17% bonds and 83% equities overall, like you.
Why does 'Holding VWRL plus bonds as the wealth preserver element’ not make sense?
Isn't the sense it makes is that is doesn't use an active fund, with evidence strongly pointing to active funds being poorer value for money than passive funds beyond the short term?

[scrumpyjack]

If you comprise your 20% segment of 85% bonds and 15% equities, that segment could easily lose value because of inflation (bonds) and a bear market (equities) so not ‘preserving wealth’. That is why, to me, it does not make sense as a wealth preserver. But ‘chacun a son gout’ as they say!
I just can’t see any way I would want to hold bonds. But, having retired, I do hold cash equal to quite a few years expenditure.

[77ss]

Thanks to all for the replies. It is especially interesting to hear from those who are retired who still have a substantial part (100%) in equities.

That's me too, 7 years retired and no regrets.

Scott.

Me too. 20 years retired. Apart from a modest cash reserve, 100% in equities all the way. I don't do trackers - apart from one brief - and, I have to say, reasonably successful, foray into an FT250 one. I do, however, have getting on for 50% in investment trusts which should mitigate the risks of individual equities.

A lot depends upon personal circumstances/risk attitude etc, but for me bonds are for the birds.

[swill453]

Thanks to all for the replies. It is especially interesting to hear from those who are retired who still have a substantial part (100%) in equities.

That's me too, 7 years retired and no regrets.

Me too. 20 years retired. Apart from a modest cash reserve, 100% in equities all the way. I don't do trackers - apart from one brief - and, I have to say, reasonably successful, foray into an FT250 one. I do, however, have getting on for 50% in investment trusts which should mitigate the risks of individual equities.

Yes, I suppose I should clarify "100% equity". I'm
65% Investment Trusts
25% Trackers
10% Preference Shares

and I'm not including my fairly big cash buffer for spending.

Scott.

[MrFoolish]

When you guys are talking about bonds in this context, are you talking about government bonds or corporate bonds?

(I hold a fixed interest UT and the ishares SLXX, both of which are corporate, and seem to give reasonable returns.)

[fisher]

Thanks to all for the replies. It is especially interesting to hear from those who are retired who still have a substantial part (100%) in equities. With me being a fully paid-up card carrying capitalist, that definitely chimes.

In summary it seems that having a heavy concentration in equities is sound. I should perhaps have mentioned that I have other investments besides the SIPP. In fact the majority of my portfolio is inside ISAs and trading accounts. It is a mix of funds (both passive and active) but I have recently been moving some into ITs. I also have stock in a handful of operating companies although those are speculative in nature.

My idea with the SIPP being passive is that it acts as a counterweight to my own arrogance when it comes to my active selections.

This seems a reasonable point of view to me.

I am also retired (8 years so far) and, other than a few years expenses in cash and a house with mortgage paid off, I'm100% equities (mainly direct holdings but about 25% Investment Trusts) . If I were in your position I'd be 100% equities (including OEICS and/or ITs). Personally I prefer Active ITs, but I get the argument for trackers and I have considered VWRL and VFEM and may invest in one or other some time soon.

[Hariseldon58]

Well 62, retired 14 years and 95% risk assets ( 90% of which is equity) the 5% is premium bonds/bonds and would cover a few years living expenses.

I have generally been 100% equities from 1990 onwards and it all worked out, however....with markets on a roll pretty much the last 12 years it's very easy to be gung ho.

I have had several heavy, prolonged falls in the markets, they can be uncomfortable, I know I can stay invested because I have done so, but it's not pleasant and the fall from early to 2000 to 2003 did feel a very long time and I was still in accumulation mode.

If you do the sums, retired 2021 for 14 years, means I retired with pretty much everything in equities in 2007 and we know what came after that, it all worked out but it's not for everyone and you need a portfolio you can live with, without sleepless nights...dividends are out of fashion now but they are reassuring when everything is heading south.

[1nvest]

Add my vote to the "nothing in bonds" camp. I recall when gilts were giving yields-to-maturity of 12% and that was certainly a risk-free return worth having, even if inflation was much higher back then. But at current rates you are almost guaranteed negative returns from bonds going forward.

So has been the mantra pretty much for a decade now since the transition over to low yields post 2008/9 financial crisis, yet here we are where long dated gilts have doubled up in value since then. From prior to the financial crisis, starting in Jan 2007 to the end of 2020 and long dated gilts have near identical total returns to the FT250. A 50/50 yearly rebalanced blend of both exceeded both the individuals.

As and when declines do occur, what drives down bond values will also impact stock values.

The nature of volatility is that the up's are larger than the down's, a -33% decline requires a +50% gain to get back to break-even. With the likes of the Permanent Portfolio typically one asset will pop to the upside in most years and where the gains from that tend to more than compensate for declines//losses in the other assets. I suspect for instance that when long dated gilts endure a crew-cut haircut that likely gold will spike up sufficiently to offset bond losses.

Or as many hereabouts do, just stick with a single asset alone, more concentrated, more volatile.

Really we've seen a prolonged downward trend in interest rates for decades now, which is great for stocks and bonds. When another 60's or 70's type characteristic rises however then all-stock can be very uncomfortable, if not critical. A concern is that in not really allowing markets to free-float and endure the more regular downs that they otherwise might, falsely propping up the markets, that queues up a potentially even more uncomfortable situation - maybe a repeat of the 1970's rise into 20%+ type inflation rates. A asset allocation that takes such in its stride is far better placed than one that endures the full whack.

I believe Terry (TJH) rode through that 1970's era relatively well - I suspect due to still being in savings/accumulation mode, many others didn't (that were typically in drawdown and as such enduring a double hit of having to draw more in reflection of high/rising inflation at a time when portfolio values were taking serious hits) and saw lifetime accumulated substantial portfolio values being devastated.

I recall when gilts were giving yields-to-maturity of 12% and that was certainly a risk-free return worth having, even if inflation was much higher back then.

Easy to see with hindsight what bargains were evident 'back then'. Far less easy to see at the time. I recall buying some 12% yielding gilts also, and backing up the truck to fully load up on them (bet the farm) would subsequently have been a great thing to have done. However the anxieties and concerns of possible even higher yields to come was the natural repellent to do so. Either your investment policy accommodates a degree of automation to load up at least some (such as via yearly rebalancing), or you're left to your own 'market timing' devices. More often automation trumps timing due to human nature more often resulting in the wrong timing based action (greed/fear).

[Lootman]

Add my vote to the "nothing in bonds" camp. I recall when gilts were giving yields-to-maturity of 12% and that was certainly a risk-free return worth having, even if inflation was much higher back then. But at current rates you are almost guaranteed negative returns from bonds going forward.

So has been the mantra pretty much for a decade now since the transition over to low yields post 2008/9 financial crisis, yet here we are where long dated gilts have doubled up in value since then.

Yes, gilts have doubled since then. But then the S&P 500 is up six fold in about the same time period (from the intraday 666 low to almost 4,000 now) plus dividends plus a currency gain.

So going all-in on gilts in 2008/2009 created a nominal gain but an opportunity loss.

[1nvest]

The S&P500 has been more the exception than the rule, with recent years large gains driven predominately by the big techies. Lost opportunities are evident all of the time.

[Lootman]

The S&P500 has been more the exception than the rule, with recent years large gains driven predominately by the big techies. Lost opportunities are evident all of the time.

The point was that even with your cherry-picked time period, equities still trounced bonds.

The big problem with bonds, longer term, is that they cannot grow. They can only bounce around a mean. Whereas equities can and do grow.

You can do well with equities by just buying, holding and waiting. For bonds you have to trade in and out, or else accept meagre returns much of the time. And when inflation returns, look out below.

[tjh290633]

I believe Terry (TJH) rode through that 1970's era relatively well - I suspect due to still being in savings/accumulation mode, many others didn't (that were typically in drawdown and as such enduring a double hit of having to draw more in reflection of high/rising inflation at a time when portfolio values were taking serious hits) and saw lifetime accumulated substantial portfolio values being devastated.

My records from that era are fairly sketchy, but can be summartised in this table:

.   Change from Previous Year                                       
     .   Cost @                      Value @   Income             Yield %
     .   31 Dec                      31 Dec                              
                                                         Year     Yield %
Dec-71                                                   Dec-71     5.98%
Dec-72                      -7.25%     8.60%   -17.07%   Dec-72     4.57%
Dec-73                       7.25%   -20.60%     1.17%   Dec-73     5.82%
Dec-74                      -1.06%   -36.61%    24.81%   Dec-74    11.46%
Dec-75                      23.15%   118.96%     3.00%   Dec-75     5.39%
Dec-76                       5.72%     3.00%    22.35%   Dec-76     6.40%
Dec-77                     -32.06%   -10.48%    16.57%   Dec-77     8.34%
Dec-78                       8.56%    15.72%   -24.94%   Dec-78     5.41%
Dec-79                      11.82%    10.45%    27.23%   Dec-79     6.23%
Dec-80                      23.92%    34.35%    27.17%   Dec-80     5.90%

I was saving into 3 unit trust with regular monthly payments of about £5 each. I sold a couple of other holdings in 1972, possibly to change a car, then 1974 was the year of a very big fall in the market. I just carried on buying throughout. In 1977 I sold some holdings to put as deposit down on aour present house, which was under construction. My main focus was on income funds, some commodity, like the precursor of JPM Natural Resources, Jessel Plantations and General and Jascot Commodity Fund. 1978 reflects the sale of those two holdings in 1977.

At that time the only yardstick was the FT30 index, and I don't have records of that handy.

TJH

[1nvest]

Your record keeping and age to cognitive ratio repeatedly astounds me Terry. Thanks.

[JohnW]

If you comprise your 20% segment of 85% bonds and 15% equities, that segment could easily lose value because of inflation (bonds) and a bear market (equities) so not ‘preserving wealth’. That is why, to me, it does not make sense as a wealth preserver. But ‘chacun a son gout’ as they say!

Thanks for helping tease this out.
Yes, my 20% in a 'safe-ish' bundle of bonds and stocks could lose value with inflation and an equity bear market, so not preserving wealth, but surely a PNL wealth preservation fund with bonds and stocks in the same proportions would similarly not 'preserve wealth' despite it calling itself a wealth preservation fund. I don't see why the active fund like PNL would do better, other than they sometimes do but in the long run most don't - and they usually cost more.

When you guys are talking about bonds in this context, are you talking about government bonds or corporate bonds?

(I hold a fixed interest UT and the ishares SLXX, both of which are corporate, and seem to give reasonable returns.)

The idea of a bond holding is, or was, to dampen stock volatility. You own stocks as they provide good returns, but as their values can swing wildly you also hold bonds which hold their value steady (or increase with a crisis) so the equity swings are ameliorated. If that's the path you'll take, you need the lowest risk bonds which are government bonds, and short-ish duration. They're low return, yes, but if you want more return you choose more equities and less bonds, all the way to 100/0. The attraction of those bonds, over another option, is that it makes simpler your task of picturing how risky your portfolio is.
That other option might be corporate bonds (with or without government bonds as well), and high or low risk corporates too. Their yield will be higher, but their default risk higher also as will be their volatility. The highest returning corporate bonds will behave (and pay) more like equities than government bonds; doesn't that make it harder to get a clear picture of the risk profile of your assets than just equities and just low risk bonds?
Your corporate bonds are yielding higher than government bonds because the market demands more return on them because it expects some will default. The higher the yield the more default is expected. If you hold them through the 'good times' when no businesses are going broke, and thus able to pay the bond holders, you win with corporates. But the opposite applies. So to say that yours give reasonable returns means little unless you relate that to the risk you are taking.
High quality corporate bonds can be a good choice (as can low ones), but they won't return as much as low quality ones although more than government bonds. But to imagine that you're getting a better product with a corporate bond than a government bond, if you can also hold equities in any proportion you like, is something that I can't understand.

[1nvest]

The big problem with bonds, longer term, is that they cannot grow. They can only bounce around a mean. Whereas equities can and do grow.

Not everyone seeks growth, some prioritise wealth preservation. Given higher stock volatility and a sequence of stocks halving, halving again and halving yet again ... as occurred during the Wall Street Crash era, and those also drawing a income from a stock heavy portfolio may end up capitulating to consolidate the losses, simply due to fear and seeking to preserve 'what little remained'. Many seem to express confidence that they could stomach high (stock) volatility, but when the crunch occurs their temperament changes. Those more disinterested and that rarely 'look' perhaps have the advantage, but then if so they wouldn't be reading this board.

Groucho Marx earned a fortune and lost much in stocks. Subsequently he opted just to hold bonds and would have been wealthier overall if he'd never held any stocks. That's a much more common outcome than you might believe.

[JohnW]

Nominal bonds don't grow, but inflation linked ones can if there's inflation. But that's a whole other chapter for another day.

[MrFoolish]

High quality corporate bonds can be a good choice (as can low ones), but they won't return as much as low quality ones although more than government bonds. But to imagine that you're getting a better product with a corporate bond than a government bond, if you can also hold equities in any proportion you like, is something that I can't understand.

I always understood that holders of corporate bonds are closer to the front of the queue than shareholders when a company goes bust. DAK what typically happens - how much of a loss would a corporate bond holder have to endure? (I don't buy single company corporates, only funds, but I'm interested in the principle.)

As for government bonds, can anyone recommend a low cost vehicle, preferably something compatible with a share dealing ISA? What sort of yield could I expect? Thanks.

[scrumpyjack]

Our attitude to investment issues is very much affected by our life experiences. I was a young man in the ‘70s so saw inflation wiping out the value of money. Sure there were high interest rates to offset inflation but the interest was taxed at up to 98% (and that started at £2,000 of income). Bonds were crushed. People have made good returns on bonds over the last couple of decades as that cycle reversed and interest rates fell. But that's a 'zero sum' game and very negative in real terms. I will never ever hold bonds (apart from ILGs) as my mindset was formed in the days of high inflation.

Personal Assets has been very successful at preserving real asset value by the mix of assets it invests in, so IMO is safer than bonds. But ‘Risk’ is in the eye of the beholder, like beauty, and I don’t mean historic volatility which is what the investment community base their ‘risk’ assessments on.
Equities are a claim on real economic activity, so like the old story in the German hyperinflation of the 20’s/30s, where a guy was pushing a wheelbarrow of money along a pavement looking for something to spend it on. Suddenly the crowd rushed to a shop window, and he followed. He then turned round and the wheelbarrow had been stolen but the money left on the pavement.

I prefer the wheelbarrow (the real asset), not the paper money (bonds).